Cash Discounts Summary

A cash discount incentivizes early payment following a sale.
Invoices detail transaction facts including items sold, trade discounts, delivery conditions, and payment terms.

Vendors extend a payment period (e.g., 60 days) starting the day after invoice issuance.
Encourages reselling of goods before payment is due.

Sellers finance the sale during the payment period and may offer discounts for early payments.
Cash discounts help ensure preferential payments, especially during financial difficulties.

2/10, n/30: 2% discount if paid within 10 days, else net due in 30 days.
1/15, n/60 ROG: 1% discount if paid within 15 days of receipt, else net due in 60 days.
2/5, n/30, EOM: 2% discount if paid within 5 days after month-end, else full payment due in 30 days.

Discounts may apply to partial payments, thus a discount can be applied to just part of an invoice.

For an invoice totaling $4,500 with terms 3/10, 2/15, n/30:
- If $1,000 is paid on April 6, the credit formula is used:
- Credit = $1,000/(1-0.03) = $1,030.93
- Remaining balance: $4,500 - $1,030.93 = $3,469.07
- On a final payment on April 11, pay: $3,469.07(1-0.02) = $3,399.69.
For two invoices of $2,500 (Invoice 1) and $3,250 (Invoice 2), deadlines coincide on May 4:
- Payment of $760 gives: Credit = $760/(1-0.05) = $800
- Remaining on fridge: $2,500 - $800 = $1,700
- For range: $3,250(1-0.05) = $3,087.50
- Total final payment: $1,700 + $3,087.50 = $4,787.50.